More Help For RIAs

I had an epiphany this morning,” says Peter Mangan, “and I realized I was wrong.”

Thank heavens, I thought to myself. I like Mangan. I didn’t want to have to write a story saying his fledgling RIA custody business, Shareholder Services Group (SSG), was building a proprietary technology system. Fortunately, after I read to Mangan quotes from some of the advisors I interviewed reacting negatively to his plan for using Investigo, he got it. He realized that RIAs want freedom of choice, that anything compromising their freedom risks alienating them.

This story is about Investigo, a noteworthy new entrant to the portfolio management software category. But it’s only fair also to mention Mangan’s epiphany.

Mangan’s firm is a startup in the RIA custody business. Mangan ran Jack White & Co.’s mutual fund supermarket from 1990 till 1998 and also ran White’s RIA platform from 1994 until 1998. When White was purchased by TD Waterhouse, Mangan and his team were tapped to run TD Institutional’s RIA business. He did that until 2000, when he moved on to run TD’s fund supermarket for two years before exiting TD.

Mangan started SSG last spring with Bob Reed, a veteran brokerage executive who was a key player in Jack White’s success, and Barry Boyte, the former White and TD Institutional marketing director.

SSG signed its first contract with an advisor in August. Mangan has set a modest goal of attracting $1 billion in assets over the course of the next two years, and is not aiming to be the biggest custody platform. He believes that by using Pershing to clear advisor trades, SSG can tightly work with a small number of RIAs and add value to an RIA’s business. By providing great service and leveraging his team’s knowledge of the RIA business, Managan believes SSG can help his advisor clients manage and grow their businesses and thus build a small but profitable custodial services boutique for RIAs.

The deal with Investigo would stand as the first example of what Mangan wants to do with SSG: Find good practice management ideas for RIAs and help them implement and integrate them into their businesses. It’s adding value to the commoditized custody and clearing business.

In explaining his partnership with Investigo, however, Mangan initially told advisors that I invited to demo Investigo that they could only buy it if they have a relationship with SSG and that the advisors would need all their assets with SSG to use Investigo. Advisors on the line reacted negatively when I asked them for their thoughts about Investigo’s partnerships with SSG.

Curt Weil, an advisor in San Francisco, said, “Investigo looks like a contender but will be hobbled by being restricted to users of SSG.” Dave Cowles of Boone Associates, also in San Francisco, said, “Investigo is much cheaper than what we currently pay for AdvisorMart, but is not really comparable since AdvisorMart lets you use multiple custodians.” Matt McGrath, an advisor with Evensky, Brown & Katz in Coral Gables, Florida, was blunt. “Many advisors want flexibility in their custody decisions, preferring to keep custody independent of portfolio management software decisions,” he said. “Linking one to the other may be seen by many advisors as a negative characteristic.”

I’ve written before about the skepticism many advisors express about relying on Schwab Institutional’s technology systems, especially after Schwab said two years ago that it would restrict new sales of its portfolio management software, Centetpiece, to Schwab clients. (Advisors say Schwab has backed away from that position, by the way.) While a lot of RIAs don’t mind buying technology from their custodian or getting it for free, others feel uneasy about it. Many RIAs are leery of growing too dependent on any single custodian. If they have to rely on a custodian for technology as well as brokerage services, they feel that custodial firm could exert too much control over their business. That sentiment boiled over when Mangan made it sound like getting Investigo would be conditional on clearing through SSG.

Mangan’s epiphany was that if SSG was going to use Investigo in attracting RIAs, SSG would have to acknowledge that RIAs it works with would be free to custody assets with TD Institutional, Schwab, Fidelity and other custodians in addition to SSG. Mangan’s epiphany was that to successfully add value to advisors by providing them with technology, SSG must do it in a way that does not impair their independence.

SSG has an exclusive right to distribute Investigo for six months, and Investigo has agreed that it will not be sold at a price lower than what SSG RIAs receive, Mangan says. However, any notion Mangan may have had about trying to restrict the business of advisors who want Investigo has been abandoned. Market forces eventually may force all the other custodians and technology companies come to the same realization.

But the real story here is Investigo. A total of sixteen RIAs attended two Web demos of this portfolio management, accounting, and reporting software, which also is also capable of customer relations management. While some of the advisors had reservations about it, as some RIAs will about any portfolio reporting software, about half of them said Investigo was a contender, a real choice for RIAs.